hey everyone this is Logan Herz with hasseltine LLC I thought today we'd go over one of the more overlooked benefits of the first lean HELOC uh that I really believe in but it's something that the calculator actually doesn't take into account and um it's something that is uh usually foremost in my mind that I want to show here today which is how simply by running your cash flow through uh the HELOC even the that you spend can actually be working for you so let me give you an example to show you what I'm talking about so this is a sample case and I'm not going to go through all the details here um you can go to another video if you want to see the basics how the first scene HELOC works but this is just a $300,000 U Mortgage in this example um so a $300,000 mortgage with three and a half% interest over here you can see there few years into it versus a $300,000 first seen HELOC with an 88.8% interest rate in this example this hypothetical client has $112,000 of monthly income and $5,000 of monthly expenses not including the housing payment because once you replace your mortgage with a helck you no longer have the housing payment and then we have home owners insurance and property taxes and in this example by taking out by replacing your mortgage with a first seene HELOC and this mortgage you're six years in but while replacing it with a first SE HELOC you pay off your house in about a little under four and a half years uh the equivalent 30-year amortise interest rate would be 1.3% okay and we've been through this before but I want to jump into something a little more detailed that this calculator is actually handicapping the first scene HELOC okay first Helo actually helps you more than what this calculator is showing so as an example let's just take a look at this table here so just let's just look at the first month so in the first month the HELOC you're going to pay more in interest obviously because the HELOC comes with a higher interest rate so in the first month it's saying you're going to pay $2,200 towards interest and then every month after that gets better as you can see as the as the principal comes down okay but that's not actually true you're actually going to pay less in interest okay the only way you put would pay this $2,200 in interest is if not just your starting principal balance was $300,000 but your average daily principal balance for the first month was $300,000 which I'm pretty sure will not be the case so you're actually going to pay less in interest and you're actually going to pay this off faster than what's Illustrated here and let me show you how okay so now I'm going to flip to uh another spreadsheet that I built okay so this is John Smith okay so remember he has monthly income of $112,000 okay in this example I'm assuming he gets paid on the first and the 15th of the month so $6,000 comes into his bank account on the first of the month and $6,000 comes in on the 15th of the month okay and then his expenses come out on the 28th of the month okay now obviously everyone's situation is a little bit different um but you'll see how almost regardless of your situation the amount of Interest you're going to pay is going to be less than what the calculator is actually showing and if you want to really take advantage of the first hilock what you should do is change all of your bills or the ones that you can so that they're paid as late in the month as possible okay so your starting principal balance is $300,000 okay but remember you're charged interest not on the starting principal balance but on the average daily principal balance which in this example is actually $291,500 which means the amount of interest you pay is not $2,200 but actually $2,136 120 and that's just in the first month okay if you were to calculate this all out over a number of years it could make a big difference this could make a big difference so how is it that we're actually paying less an interest than what the calculator is showing well the calculator is deliberately being conservative right the only way you would pay $2,200 in interest is if your principal balance stayed at $300,000 for the whole month which meant you have you had no income for that month and therefore your principal balance didn't go down at all okay so but what's actually going to happen is you're going to dump your $6,000 of income at the beginning of the month your first $6,000 hits on day one your principal balance immediately drops to $294,000 okay then it stays at $294,000 okay and then on the 15th that remaining $6,000 drops in so your principal balance drops to $288,000 and your income stays in the HELOC for most of the month right so for 27 days out of 30 your principal balance has been reduced by your income and then on the 28th $5,000 of expenses comes out of your HELOC and therefore your principal balance goes back up to $293,000 okay and then eventually you would also make that interest payment okay so what this is showing you is that unless all your income comes in and all your expenses go out on the same day of the month which is very unrealistic you're actually going to be paying less in interest than what the calculator illustrates because your income is going to be sitting in that helck for some amount of time before your expenses come out so even this $5,000 that you spent it sat in the helck for for a few days before it came out right so you're paying less in interest that's Illustrated that's Illustrated the average daily principal balance is not $300,000 but $291,400 and that is what you're actually charge interest on so without you changing anything right just by you running your cash flow through this much more efficient vehicle you're getting some great benefits so in this example this $5,000 of expenses that you're spending if you have a standard checking account that $55,000 just fits in your checking account for maybe a couple of weeks and then it comes out and gets spent that's it that $5,000 did nothing for you in this example and and that's what the calculator shows that that $5,000 did nothing for you but that's not realistic in this example that $5,000 is doing something for you right because for 27 out of 30 days it was sitting in your helck which meant it reduced your principal balance by $5,000 for 27 days 30 which means it reduced your average daily principal balance by almost $5,000 which reduced your interest costs even though you spent all that money so this is an important point to make that in the calculator we're actually handicapping the first lean HELOC it's actually going to look better than what's Illustrated and you could get very granular on this depending on when your income comes in and when your expenses go out out you know you could you could make assumptions and see what it would actually cost you and it would be less than Illustrated so that's an important point to make um so if you're trying to optimize your first lean helck if you're in charge of when your income hits your bank account which you're usually not you want that to hit as early in the month as possible but usually you have some amount of control over when you pay your bills right um and you can pay them as late in the month as possible that way your income sits in your helck your float as they call it is as long as possible and so just by again optimizing your cash flow by how it flows through your helck you are reducing your out-of-pocket interest costs and increasing your Equity gain so I hope this was helpful thanks so much for watching
